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Economic growth

(1) an outward shift in the production possibilities curve that results from an increase in resource supplies or quality or an improvement in technology (2) an increase in real output (GDP) or real output per capita.

Real GDP per capita

Gross domestic product adjusted for inflation; gross domestic product in a year divided by the GDP price index for that year, expressed as a decimal.

Rule of 70

A method used for determining the number of years it will take to for some measure to double, given its annual percentage increase.

Productivity

A measure of average output or real output per unit of input.

Business cycle

Recurring increases and decreases in the level of economic activity over periods of years; consist of peak, recession, trough, and recovery phases.

Recession

A period of declining real GDP, accompanied by lower real income and higher unemployment

Labor force

Persons 16 years of age and older who are not in institutions and who are employed or are unemployed and seeking work.

Unemployment rate

The percentage of the labor force unemployed at any given time.

Discouraged workers

Employees who have left the labor force because they have not been able to find employment.

Frictional unemployment

A type of unemployment caused by workers voluntarily changing jobs and by temporary layoffs; unemployed workers between jobs.

Structural unemployment

Unemployment of workers whose skills are not demanded by employers, who lack sufficient skills to obtain employment, or who cannot easily move to locations where jobs are available.

Cyclical unemployment

A type of unemployment caused by insufficient total spending ( or by insufficient aggregate demand

Full rate of unemployment

The unemployment rate at which there is no cyclical unemployment of the labor force; equal to between four and five percent on the United States because some frictional and structural unemployment is unavoidable.

Natural rate of unemployment

The full employment unemployment rate; the unemployment rate occurring when there is no cyclical unemployment and the economy is achieving potential output; the unemployment rate at which actual inflation equals expected inflation.

Potential output

The real output (GDP) an economy can produce when it fully employs its available resources

GDP gap

Actual gross domestic product minus potential output; may be either a positive amount or a negative amount

Okuns law

The generalization that any 1-percentage point rise in the unemployment rate above the full unemployment above the full-unemployment rate will increase the GDP by 2percent of the potential output.

Inflation

A rise in the general level of prices in an economy.

Consumer Price Index (CPI)

An index that measures the prices of a fixed “market basket” of some 300 goods and services bought by a “typical” customer.

Demand-pull inflation

Increase in the price level (inflation) resulting from an excess of demand over output at the existing price level, caused by an increase in aggregate demand.

Cost-push demand

Increase in the price level (inflation) resulting from an increase in resource cost and hence in per-unit production cost; inflation caused by reductions in aggregate supply.

Per-unit cost production

The average production cost od an particular level of output; total input cost divided by units of output.

Nominal income

The number of dollars received by an individual or group for its resources during some period of time.

Real income

of goods and services that can be purchased with nominal income during some period of time; nominal income adjusted for inflation.

Anticipated inflation

Increases in the price level (inflation) that occur at the expected rate.

Unanticipated inflation

Increases in the price level (inflation) at a rate greater than expected.

Cost of living adjustments

An automatic increase in the income of workers when inflation occurs; guaranteed by a collective bargaining contract between firms and workers.

Real interest rate

The interest rate expressed in dollars of constant value (adjusted for inflation) and to equal to the nominal interest rate less the expected rate of inflation.

Deflation

A decline in the economy’s price level

Hyperinflation

A very rapid rise in the price level; a extremely high rate of inflation.